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Question 1 of 10
1. Question
Which of the following statements is true regarding Annualized rates of return?
I. Annualized return is the theoretical return that an investment would have earned if it had been held for an entire year
II. Annualized return is calculated by finding an annualization factor and multiplying by the return
III. This is accomplished by comparing the length of the period for which the return was calculated to the length of the month
IV. The annualization factor for one month would be twelve, while the annualization factor for a day would be 30Correct
Annualized rates of return
Annualized return is the theoretical return that an investment would have earned if it had been held for an entire year. It can also be calculated backward from multi-year data. Annualized return is calculated by finding an annualization factor and multiplying by the return. This is accomplished by comparing the length of the period for which the return was calculated to the length of the year. The annualization factor for one month would be twelve, while the annualization factor for a day would be 365. An annualized return equation would appear as follows: annualized return = rate of return x annualization factor. So, a one percent return in a single day would be an annualized return of 365 percent.Incorrect
Annualized rates of return
Annualized return is the theoretical return that an investment would have earned if it had been held for an entire year. It can also be calculated backward from multi-year data. Annualized return is calculated by finding an annualization factor and multiplying by the return. This is accomplished by comparing the length of the period for which the return was calculated to the length of the year. The annualization factor for one month would be twelve, while the annualization factor for a day would be 365. An annualized return equation would appear as follows: annualized return = rate of return x annualization factor. So, a one percent return in a single day would be an annualized return of 365 percent. -
Question 2 of 10
2. Question
Which of the following statements is true regarding holding period return?
I. Holding period return is the return of a given security over the period which it is held, thus the moniker holding period return
II. The holding period is set and may not be any period of time measurable in days or years
III. Holding period return refers to interest and dividends received as well as return of principal
IV. Holding period return is useful in helping an investor determine the validity of an investmentCorrect
Holding period return
Holding period return is the return of a given security over the period which it is held, thus the moniker holding period return. The holding period is not set and may be any period of time measurable in days or years. Holding period return refers to interest and dividends received as well as return of principal. In this way, it most closely resembles total return, but total return is usually expressed in terms of annual return, whereas holding period return may refer to any period of time. Holding period return is useful in helping an investor determine the validity of an investment, and whether or not to continue to hold it, over some period of time without having to consider prior returns that may have been unusually affected by exterior circumstances.Incorrect
Holding period return
Holding period return is the return of a given security over the period which it is held, thus the moniker holding period return. The holding period is not set and may be any period of time measurable in days or years. Holding period return refers to interest and dividends received as well as return of principal. In this way, it most closely resembles total return, but total return is usually expressed in terms of annual return, whereas holding period return may refer to any period of time. Holding period return is useful in helping an investor determine the validity of an investment, and whether or not to continue to hold it, over some period of time without having to consider prior returns that may have been unusually affected by exterior circumstances. -
Question 3 of 10
3. Question
Which of the following statements is true regarding internal rate of return?
I. Internal rate of return, or IRR, can best be described as a discount rate that causes the present value of investment be unequal to its present value
II. When calculating the present and future values of investments, the IRR is the r value in the equation
III. In summary, IRR is the percentage used to equate the future cash flows of an investment to its present value
IV. Internal rate of return is most useful in the fixed-income sector of the marketsCorrect
Internal rate of return
Internal rate of return, or IRR, can best be described as a discount rate that causes the future value of an investment to be equal to its present value. When calculating the present and future values of investments, the IRR is the r value in the equation. In summary, IRR is the percentage used to equate the future cash flows of an investment to its present value. If the IRR of a security is higher than the required rate of return, it is viewed as an attractive investment. Internal rate of return is most useful in the fixed-income sector of the markets. It is unusable when applied to common stocks, since the cash flows are not substantially equal and there is no maturity date or set redemption value. IRR is most commonly seen when the yield to maturity of a bond is calculated.Incorrect
Internal rate of return
Internal rate of return, or IRR, can best be described as a discount rate that causes the future value of an investment to be equal to its present value. When calculating the present and future values of investments, the IRR is the r value in the equation. In summary, IRR is the percentage used to equate the future cash flows of an investment to its present value. If the IRR of a security is higher than the required rate of return, it is viewed as an attractive investment. Internal rate of return is most useful in the fixed-income sector of the markets. It is unusable when applied to common stocks, since the cash flows are not substantially equal and there is no maturity date or set redemption value. IRR is most commonly seen when the yield to maturity of a bond is calculated. -
Question 4 of 10
4. Question
Which of the following statements is true regarding inflation-adjusted return?
I. Inflation-adjusted return, also known as real return, is the return of an investment reduced by the rate of inflation
II. This is so measured because inflation reduces the purchasing power of an investor’s funds
III. A long-term investment then should be adjusted for inflation to determine its real return
IV. Inflation inertia is the term used to refer to the fact that inflation always immediately reflects market eventsCorrect
Inflation-adjusted return
Inflation-adjusted return, also known as real return, is the return of an investment reduced by the rate of inflation. This is so measured because inflation reduces the purchasing power of an investor’s funds. A long-term investment then should be adjusted for inflation to determine its real return. This may help the investor determine if a security with mediocre performance metrics is actually losing value instead of gaining value. Inflation inertia is the term used to refer to the fact that inflation does not always immediately reflect market events. The cost of consumer goods dropping while prices of those goods stayed high is an example of inflation inertia. The Consumer Price Index, or CPI, is the index used to measure inflation.Incorrect
Inflation-adjusted return
Inflation-adjusted return, also known as real return, is the return of an investment reduced by the rate of inflation. This is so measured because inflation reduces the purchasing power of an investor’s funds. A long-term investment then should be adjusted for inflation to determine its real return. This may help the investor determine if a security with mediocre performance metrics is actually losing value instead of gaining value. Inflation inertia is the term used to refer to the fact that inflation does not always immediately reflect market events. The cost of consumer goods dropping while prices of those goods stayed high is an example of inflation inertia. The Consumer Price Index, or CPI, is the index used to measure inflation. -
Question 5 of 10
5. Question
Which of the following statements is true regarding benchmark portfolios?
I. Benchmark portfolios are portfolios designed to mimic the volatility of the benchmark they purport to track
II. Benchmark portfolios are never viewed as a product of the efficient market theory, the theory that it is possible to outperform the market
III. Benchmarked portfolios are often less expensive to manage and less expensive for investors to participate therein
IV. This is because once the portfolio is indexed to the benchmark, little to no additional cost associated with investment management is incurredCorrect
Benchmark portfolios
Benchmark portfolios are portfolios designed to mimic the volatility of the benchmark they purport to track. As an example, a portfolio benchmarked to the Dow Jones Industrial Average would reasonably be expected to rise 10 percent if the Dow Jones rose 10 percent. The same applies to other benchmarks such as the S&P 500 or the Russell 2000. Benchmark portfolios are often viewed as a product of the efficient market theory, the theory that it is impossible to outperform the market. Benchmarked portfolios are often less expensive to manage and less expensive for investors to participate therein. This is because once the portfolio is indexed to the benchmark, little to no additional cost associated with investment management is incurred. Managers who actively manage portfolios often incur large expenses and pass them on to investors. This is usually not the case with benchmarked portfolios.Incorrect
Benchmark portfolios
Benchmark portfolios are portfolios designed to mimic the volatility of the benchmark they purport to track. As an example, a portfolio benchmarked to the Dow Jones Industrial Average would reasonably be expected to rise 10 percent if the Dow Jones rose 10 percent. The same applies to other benchmarks such as the S&P 500 or the Russell 2000. Benchmark portfolios are often viewed as a product of the efficient market theory, the theory that it is impossible to outperform the market. Benchmarked portfolios are often less expensive to manage and less expensive for investors to participate therein. This is because once the portfolio is indexed to the benchmark, little to no additional cost associated with investment management is incurred. Managers who actively manage portfolios often incur large expenses and pass them on to investors. This is usually not the case with benchmarked portfolios. -
Question 6 of 10
6. Question
Which of the following statements is true regarding joint accounts?
I. Joint accounts are accounts owned by multiple adult clients
II. Joint account agreements are required for all joint accounts as well as the designation of each account owner
III. The joint owners may not be designated either as tenants in common or joint tenants with rights of survivorship
IV. All forms related to the account require signatures from all parties without account ownershipCorrect
Joint accounts
Joint accounts are accounts owned by multiple adult clients. Each adult owner retains some measure of power over the account. The advisor should collect suitability information for all owners of a joint account. Joint account agreements are required for all joint accounts as well as the designation of each account owner. The joint owners may be designated either as tenants in common or joint tenants with rights of survivorship. All forms related to the account require signatures from all parties with account ownership. Additionally, checks made payable to the account must be made payable to all account owners and endorsed by all owners as well. When securities are sold from joint accounts, all owners must sign for the securities for the transaction to be qualified as delivery in good form.Incorrect
Joint accounts
Joint accounts are accounts owned by multiple adult clients. Each adult owner retains some measure of power over the account. The advisor should collect suitability information for all owners of a joint account. Joint account agreements are required for all joint accounts as well as the designation of each account owner. The joint owners may be designated either as tenants in common or joint tenants with rights of survivorship. All forms related to the account require signatures from all parties with account ownership. Additionally, checks made payable to the account must be made payable to all account owners and endorsed by all owners as well. When securities are sold from joint accounts, all owners must sign for the securities for the transaction to be qualified as delivery in good form. -
Question 7 of 10
7. Question
Which of the following statements is true regarding affiliated person vs. controlling person?
I. An controlling person is a person who owns, controls, or holds the power to vote five percent or greater of issued stock of an investment company
II. This definition also includes people who control or are controlled by employees and directors of the investment company
III. A affiliated person is any person who owns twenty-five percent or more of that company’s issued stock
IV. A controlling person does contribute to the limit of interested persons allowed on the boardCorrect
Affiliated person vs. controlling person
An affiliated person is a person who owns (either directly or indirectly), controls, or holds the power to vote five percent or greater of issued stock of an investment company. This definition also includes people who control or are controlled by employees and directors of the investment company. Although greater than five percent voting power makes the person an affiliated person, it does not contribute to the limit of interested persons on the board of the investment company. A controlling person, or a person said to own a controlling share of issued stock, is any person who owns twenty-five percent or more of that company’s issued stock. A controlling person does contribute to the limit of interested persons allowed on the board.Incorrect
Affiliated person vs. controlling person
An affiliated person is a person who owns (either directly or indirectly), controls, or holds the power to vote five percent or greater of issued stock of an investment company. This definition also includes people who control or are controlled by employees and directors of the investment company. Although greater than five percent voting power makes the person an affiliated person, it does not contribute to the limit of interested persons on the board of the investment company. A controlling person, or a person said to own a controlling share of issued stock, is any person who owns twenty-five percent or more of that company’s issued stock. A controlling person does contribute to the limit of interested persons allowed on the board. -
Question 8 of 10
8. Question
Which of the following statements is true regarding Annual reports?
I. Annual reports are documents that are required to be made available to stockholders of a publicly traded firm
II. The document details the endeavors undertaken by the firm and the domestic furniture of the firm
III. The information contained in the annual report is highly detailed and discusses in depth the condition of the firm
IV. Usually contained in the document are items of financial note, the board’s letter to the firm’s stockholders, etcCorrect
Annual reports
Annual reports are documents that are required to be made available to stockholders of a publicly traded firm. The document details the endeavors undertaken by the firm and the financial health of the firm. The information contained in the annual report is highly detailed and discusses in depth the condition of the firm. The investor may make use of the annual reports and the information contained therein to produce financial ratios, understand future endeavors of the firm, and gather an understanding of the general condition of the firm. Usually contained in the document are items of financial note, the board’s letter to the firm’s stockholders, presentation of current and future endeavors to be undertaken, where management feels that the company currently is and is going, financial statements and any notes related thereto, a publishing of the auditors’ findings concerning the report, and a summary of the company’s financial data.Incorrect
Annual reports
Annual reports are documents that are required to be made available to stockholders of a publicly traded firm. The document details the endeavors undertaken by the firm and the financial health of the firm. The information contained in the annual report is highly detailed and discusses in depth the condition of the firm. The investor may make use of the annual reports and the information contained therein to produce financial ratios, understand future endeavors of the firm, and gather an understanding of the general condition of the firm. Usually contained in the document are items of financial note, the board’s letter to the firm’s stockholders, presentation of current and future endeavors to be undertaken, where management feels that the company currently is and is going, financial statements and any notes related thereto, a publishing of the auditors’ findings concerning the report, and a summary of the company’s financial data. -
Question 9 of 10
9. Question
Which of the following statements is true regarding time value of money?
I. The time value of money is a quantitative measure that attempts to describe the difference between the value of a given amount of money in the past versus its value at a present time
II. The time value of money is calculated by assigning an interest rate to an investment, and may also be used as a discount rate to determine the decline in value of an investment
III. The time value of money is useful to investors in determining whether or not an investment is worth the expenditure of capital
IV. The investor will reject the proposed investment because the opportunity cost of accepting the investment is too highCorrect
Time value of money
The time value of money is a quantitative measure that attempts to describe the difference between the value of a given amount of money in the present versus its value at a future time. These concepts are also referred to as present value and future value. The time value of money is calculated by assigning an interest rate to an investment, and may also be used as a discount rate to determine the decline in value of an investment. The time value of money is useful to investors in determining whether or not an investment is worth the expenditure of capital. If the expected rate of return of an investment does not keep up with inflation or is much lower than the reasonably expected return of another investment, the investor will reject the proposed investment because the opportunity cost of accepting the investment is too high.Incorrect
Time value of money
The time value of money is a quantitative measure that attempts to describe the difference between the value of a given amount of money in the present versus its value at a future time. These concepts are also referred to as present value and future value. The time value of money is calculated by assigning an interest rate to an investment, and may also be used as a discount rate to determine the decline in value of an investment. The time value of money is useful to investors in determining whether or not an investment is worth the expenditure of capital. If the expected rate of return of an investment does not keep up with inflation or is much lower than the reasonably expected return of another investment, the investor will reject the proposed investment because the opportunity cost of accepting the investment is too high. -
Question 10 of 10
10. Question
Which of the following statements is true regarding descriptive statistics?
I. Descriptive statistics are a set of calculated numbers that are not used to generalize a set of data
II. In relation to the securities industry, descriptive statistics tend to measure risk, reward (returns), and the ranges pertaining thereto
III. These measurements are useful to investors, preventing them to determine if a security matches their risk tolerance and return needs
IV. The most useful descriptive statistics pertaining to the securities industries are the measures of central tendency, range, standard deviation, and betaCorrect
Descriptive statistics
Descriptive statistics are a set of calculated numbers that are used to generalize a set of data. In relation to the securities industry, descriptive statistics tend to measure risk, reward (returns), and the ranges pertaining thereto. These measurements are useful to investors, allowing them to determine if a security matches their risk tolerance and return needs. The most useful descriptive statistics pertaining to the securities industries are the measures of central tendency (mean, median, and mode), range, standard deviation, and beta (and its derivatives).Incorrect
Descriptive statistics
Descriptive statistics are a set of calculated numbers that are used to generalize a set of data. In relation to the securities industry, descriptive statistics tend to measure risk, reward (returns), and the ranges pertaining thereto. These measurements are useful to investors, allowing them to determine if a security matches their risk tolerance and return needs. The most useful descriptive statistics pertaining to the securities industries are the measures of central tendency (mean, median, and mode), range, standard deviation, and beta (and its derivatives).